Architecture and Engineering Industry Study

34th Annual Comprehensive Report

Architecture and Engineering Industry Study

In collaboration with

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Architecture and Engineering Industry Study 34th Annual Comprehensive Report

Know more. Do more.

4 Section 1: State of the A&E Industry

10 Section 2: Key Performance Indicators

20 Section 3: The Balance Sheet

28 Section 4: A&E Outlook & Strategies

36 2012 Statistics at a Glance

42 Index

43 Deltek Profile

deltek.com

4 CLARITY: Architecture and Engineering Industry Study 5

Welcome ..........................................4

Looking Back—The Great Recession ............................5

Looking at Today—Key Performance Indicators..............6

Looking Ahead— A&E Outlook ....................................7

Inside High Performing Firms ...........................8

About the Study .............................9

Section 1:State of the A&E Industry

62.0% 65.0% 60.0%

63.0%

54.5% 2.70

2.96

2.82

2.92

3.07

Utilization Rate Net Labor Multiplier

2.85

Early 90s Recession Early 2000s Recession Great Recession

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1990 1991

Recession Operating Profit Source: Deltek Clarity A&E Industry Study 1990–2012

Welcome

In 2007, the U.S. economy and the architecture and engineering industry alike were enjoying some of the greatest economic prosperity of modern times, fueled by a historic rise in property and home values and a global building boom.

But already, rumblings were growing about problems in the so-called sub-prime mortgage market. Many had warned about a housing bubble throughout the entire run-up in home prices, but few outside of the financial industry were prepared for what was about to come. On September 15, 2008, the investment bank Lehman Brothers collapsed, and everyone knew.

The last five years have indeed been a financial roller coaster ride for most A&E firms, but the good news is that many have started the climb back up, which you’ll see in results of the 34th edition of the Deltek Clarity Architecture and Engineering Industry Study. There are dozens of financial indicators that the industry is improving slowly but steadily, and this report will help firm leaders assess the current conditions and plan for the journey ahead.

Deltek’s financial metrics survey is the oldest, longest-running study of its kind, and provides the industry’s most comprehensive resource on financial performance and market outlook for A&E firm leaders.


62.0% 65.0% 60.0%

63.0%

54.5% 2.70

2.96

2.82

2.92

3.07

Utilization Rate Net Labor Multiplier

2.85

Early 90s Recession Early 2000s Recession Great Recession

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1990 1991

Recession Operating Profit Source: Deltek Clarity A&E Industry Study 1990–2012

Looking Back—The Great RecessionUnlike past recessions when some markets were hit harder than others, virtually every sector addressed by A&E firms experienced a steep decline during the Great Recession, which officially began in December 2007 and ended in June 2009.

Private development stopped short. Businesses cut all non-critical spending. Big universities put their building plans on hold. Falling tax revenues pinched states and municipalities. With less work to go around, competition between A&E firms increased in every market, lowering fees for everyone, and squeezing out profit. Even Federal stimulus funds, focused on “shovel ready” projects, bypassed most designers. There were mass layoffs, and some companies closed up shop for good. The American Institute of Architects said member firms lost 60,000 payroll jobs—over a quarter of total employment—from 2008 to 2012.

The impact of the recession on the average A&E firm can be seen by looking at key performance indicators, including labor utilization, labor multipliers and operating profit. To begin with, note that the long-term average net profitability (1990–2012) for A&E firms is 10.1%, labor multiplier is 2.90, and utilization is 61.1%.

Prior to the late 1990s, profit margins were consistently lower, and since then have generally prevailed higher. Utilization and Labor Multipliers tend to work in opposition; when one goes up the other goes down, except in a recession when they both go down.

Let’s look at just profitability for the last three recessions:

Early 90s: In the early 90s recession, profitability bottomed out in the first year after the recession, immediately rebounded, but stayed below the long-term average.

2001 recession: Profitability rose quickly in the late 90s, but had already begun to decline leading into the 2001 recession. It reached its bottom two years after the end of the recession and then quickly peaked three years later in 2006 at 13.9%

Great Recession: By contrast, in the longer-lived Great Recession, profitability was rising as the recession began. It declined rapidly for the 18 months of the event, and bottomed out quickly. It returned slowly, but for a smaller industry, with lower employment and fewer companies.


Looking at Today—Key Performance IndicatorsAnd now, over three years later, profits are finally back to their historical norms. In fact, the average A&E firm’s financial metrics looked stronger in 2012 than in any year since the recession began.

Utilization is rising. Overhead rates are falling. The average collection period declined, and net revenue per employee is growing. On the balance sheet, the current ratio is up, and debt-to-equity is down.

Of course, many challenges for A&E firms lie ahead: the federal budget sequester and its potential ripple effects in state and local spending, continued uncertainty in the housing market and a looming professional talent shortage just as the economy heats up.

The bottom line: A&E firms are gradually bouncing back from the economic slump and have finally balanced their workload and staffing to manageable numbers. The million-dollar question: Will we continue in a slow recovery pattern for several more years, or does the next boom begin now?

Highlights• After reaching a decade low in 2009 at 8.4%, Operating Profit rates

continued to rise steadily to 10.1% last year.

• Utilization rose in 2012 from 58.3% to 59.9%, and now is up over five percentage points since bottoming out two years ago.

• Overhead Rates dropped by more than 10 percentage points last year from their peak in 2011.

• Net Revenue Per Employee finally began to make up lost ground in 2012, rising to $121,902.

2012 Average Key Performance Indicators Three-Year Trend

7.9% Operating Profit on Total Revenue

10.1% Operating Profit on Net Revenue

59.9% Utilization Rate

2.91 Net Labor Multiplier

1.75 Total Payroll Multiplier

161.6% Overhead Rate — Excluding Bonuses

76 Average Collection Period (Days)

$121,902 Net Revenue per Employee

21.8% Pre-Tax Return on Equity

2.24 Current Ratio

65.8% Contribution Rate

0.860 Debt to Equity


Looking Ahead—A&E Outlook We’ve looked at where the industry has been and where it is today, but as every investor has heard many times, “Past performance may not be indicative of future results.”

What’s next for A&E firms? We asked participants a series of questions about their forecast, outlook on markets and strategies for success:

• Revenue growth projections for 2013 are slightly higher than the actual 2012 growth rate, showing continued cautious optimism for this year.

• The highest market growth expectations are in the private sector—nearly half expect their private sector work to grow in the next 18 months. While less than half of participants say they focus on the residential market, nearly all of those expect steady or growing work.

• Nearly three quarters of participants say “green” projects are a source of work for them. A third of those, led by Architecture firms, call it a “major” source. Meanwhile, the percentage of firms who said international work would be very important or critical has declined each year since 2009.

• Nearly 80% of participants said they expect to make technology investments in the near future, with a little over 60% planning to spend on information management, and nearly half in design and documentation.

Unimportant: 64.5%

Slightly important: 27.3%

Very important: 5.5%

Very critical: 2.7%

Waning Importance of International Business in the Next 18 Months

2013 Total Revenue Growth Forecast

2.7%3.2%

2012 Actual 2013 Projection0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Highest Market Growth Expectations Are for the Private Sector

Expect our work to grow: 48.6%

Expect our work to remain steady: 41.5%

Expect our workto decline: 5.5% Do not focus on

this market: 4.4%


Inside High Performing FirmsTo achieve more, you can’t set your goal to ”average.” We singled out the most efficient and profitable firms in the study and looked at them across each metric to see what makes them different.

We started with firms that have a Net Labor Multiplier of 3.0 or higher and an Operating Profit rate of 15% or higher (pre-tax, pre-bonus on net revenues). About 20% of the study participants made the cut.

High Performing firms by definition are more profitable and have higher multipliers. They also have higher utilization and higher revenue per employee. Their average overhead rate, on the other hand, is virtually the same as other firms.

Here are a few other distinctions of High Performers:

• High Performers negotiate mostly fixed fee contracts that have higher risk and higher reward. By managing projects effectively they earn higher rewards.

• High Performers have an Average Collection Period that is 10 days shorter than other firms. Clearly, they manage their accounts receivable and cash flow more effectively.

• High Performers have stronger balance sheets, based on high profitability. They are in a better position to aggressively pursue new opportunities, including new projects, new people and new markets.

• High Performers pay over four times as much in per-employee bonuses and have a staff turnover rate three points lower than other firms.

What’s our takeaway from High Performers? Now more than ever, A&E firms need to continue to focus on negotiating higher contract fees and more effective project management to improve productivity statistics over the next few years. After five years of pressure, overhead cuts have reached the point of diminishing returns. In the “new normal,” firm leaders need fast, continuous financial insight that will give them the confidence to take on greater risks, manage all their processes from marketing to project delivery more efficiently, and achieve greater rewards.

High Performers Key Performance Indicators All Other Firms

25.0% Operating Profit 8.4%

3.43 Net Labor Multiplier 2.86

60.4% Utilization Rate 59.5%

161.8% Overhead Rate 161.2%

$144,133 Net Revenue Per Employee $116,888

3.06 Current Ratio 2.19

9.7% Employee Turnover 12.7%

$9,603 Bonuses Per Employee $2,209


About the StudyA total of 203 U.S. and Canadian Architecture and Engineering firms completed our online survey in February and March, 2013. Their responses were aggregated with prior year Clarity study data to analyze trends.

Firm typeWe use the term Architecture & Engineering (A&E) to refer to all Architecture, Engineering and allied design firms included in the study.

We also break out two broad segments for comparison:

Engineering (E) or Engineering/Architecture (E/A) firms are either pure consulting engineering firms or engineering dominant firms that also provide architectural services. E/A firms are also known in the industry as “big E, little A” firms.

Architecture (A) and Architecture/Engineering (A/E) firms are either pure architectural design firms or architecture dominant firms that also provide engineering services. A/E firms (not to be confused with A&E, which refers to all design firms) are also known in the industry as “big A, little E” firms.

Of the survey participants, 59% were Engineering or E/A firms, 34% were Architecture or A/E firms, and 7% were other types of allied design or consulting firms, including landscape architecture and environmental consulting.

Firm size45% of participants were from small firms (1–50 employees), 42% were from mid-sized firms (51–250 employees), and 13% were from large firms (251+ employees).

High PerformersWe defined High Performers as firms with a Net Labor Multiplier of 3.0 or higher and an Operating Profit rate of 15% or higher (pre-tax, pre-bonus on net revenue).

Study NotesFor average we used the median, which is the middle of the data set—half the firms are higher and half are lower. Top Quarter and Bottom Quarter refer to the top and bottom quartiles—25% of firms were equal to or higher than the top value, 25% were equal to or lower than the bottom value, and 50% fall between the two.

Learn MoreAt the end of the report are comprehensive tables including all the metrics from this section, as well as many others.

10 CLARITY: Architecture and Engineering Industry Study 1110 CLARITY: Architecture and Engineering Industry Study 11

IntroductionIn this section, we dig into the metrics derived from an A&E firm’s profit and loss statement—the key operating statistics in running a business.

For each metric, we show the 2012 average for all participants, range of responses, a 2011 to 2012 comparison, and graphs to contrast responses by firm type, by firm size, and for High Performer versus all other firms. Where possible, we also provide a 10-year graph of the metric, including a two-year moving average trend line, to give the current results more context.

At the end of the report are comprehensive tables including all the metrics from this section, as well as many others that there wasn’t room to cover in detail.

In our discussion, we will point out selected highlights, but we also encourage readers to use the data for their own analysis.

Key Data Points

• After reaching a decade low in 2009 at 8.4%, Operating Profit rates continued to rise steadily to 10.1% last year.

• Utilization rose in 2012 from 58.3% to 59.9%, and now is up over five percentage points since bottoming out two years ago.

• Over the past three years, the Net Labor Multiplier has been relatively flat, fluctuating between 2.85 and 2.95.

• Overhead Rates dropped by more than 10 percentage points last year from their peak in 2011.

• Net Revenue Per Employee finally began to make up lost ground in 2012, rising to $121,902.

• The average Staff Growth rate increased from 2.7% to 3.3% between 2011 and 2012.

• The average Employee Turnover rate declined from 13.8% to 11.8% between 2011 and 2012.

Section 2: Key Performance Indicators

Operating Profit on Net Revenue ................................... 11

Operating Profit on Total Revenue ............................... 12

Contribution Rate........................ 13

Utilization Rate ............................. 14

Net Labor Multiplier .................... 15

Total Payroll Multiplier ................ 16

Overhead Rate ............................. 17

Net Revenue Per Employee ............................... 18

Marketing Expense ..................... 19

Staff Growth .................................20

Employee Turnover ...................20

10 CLARITY: Architecture and Engineering Industry Study 1110 CLARITY: Architecture and Engineering Industry Study 11

Operating Profit on Net Revenue

2012 by Firm Type

2012 by Firm Size2012 High Performers vs. Other Firms

AnalysisOperating Profit (pre-tax, pre-bonus) on Net Revenue is the generally preferred measure for an A&E firm’s profit rate, because it omits pass-through revenue from the top line and taxes and discretionary distributions from the bottom line.

After reaching a decade low in 2009 at 8.34%, Operating Profit rates continued to rise steadily to 10.1% last year. Firms serving the private sector had higher profits. Mid-sized firms continued to be more profitable than their smaller or larger counterparts. And the highest performing firms in the survey pointed the way to what is possible, with a 25% profit margin.

Operating Profit on Net Revenue is calculated by dividing pre-tax, pre-distribution profit

by Net Revenue (total revenue minus consultants and other direct expenses, both billable and non-billable), and multiplying by l00.

2012 AVERAGE

10.1%

Ten-Year Trend

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

9.8%

11.3%

12.9%

13.9% 13.0%

11.2%

8.4% 9.1% 9.3%

10.1%

2012 2011

Top Quarter 17.2% 16.3%

Average 10.1% 9.3%

Bottom Quarter 5.2% 3.0%

25.0%

8.4%

High Performers All Other Firms5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

27.5%

30.0%

32.5%

35.0%

12.7%

9.6%

A or A/E E or E/A4%

6%

8%

10%

12%

14%

16%

18%

9.6%11.1%

8.7%

1-50 51-250 251+4%

6%

8%

10%

12%

14%

16%

18%

Two-Year Moving Average


Operating Profit on Total Revenue

2012 2011


Average 7.9% 7.4%


AnalysisThe Operating Profit rate on Total Revenue is an alternate way to look at an A&E firm’s profitability. Operating Profit on Total Revenue reached a ten-year low in 2009 at 6.6%, but climbed back to 7.9% in 2012. Mid-sized firms were a little more profitable, and of course High Performers were significantly more profitable.

Operating Profit on Total Revenue is calculated by dividing pre-tax, pre-

distribution profit by Total Revenue, then multiplying by 100.

2012 by Firm Type


19.6%

6.7%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

High Performers All Other Firms

8.3% 7.9%

2%

4%

6%

8%

10%

12%

14%

16%

A or A/E E or E/A

7.2%8.5%

6.9%

2%

4%

6%

8%

10%

12%

14%

16%

1-50 51-250 251+

2012 AVERAGE

7.9%


Contribution Rate

2012 2011


Average 65.8% 66.0%


AnalysisThe Contribution Rate is the portion of each dollar of Net Revenue remaining after all direct project costs (both labor and expenses) are covered. It has hovered between 65% and 66% over the last three years. High Performers have an average Contribution Rate that is five percentage points higher than the norm. Contribution Rates are slightly higher in larger firms and in Architecture and A/E firms.

The Contribution Rate is calculated by dividing Gross Profit (Net Revenue minus

Direct Labor and other Direct Expenses) by Net Revenue, then multiplying by 100.

2012 by Firm Type


71.1%

65.1%


64.0%

65.0%

66.0%

67.0%

68.0%

69.0%

70.0%

71.0%

72.0%

73.0%

74.0%

67.2%

65.1%

A or A/E E or E/A63%

64%

65%

66%

67%

68%

69%

70%

65.8% 65.5%

67.6%

1-50 51-250 251+63%

64%

65%

66%

67%

68%

69%

70%

2012 AVERAGE

65.8%


Utilization Rate

2012 by Firm Type


AnalysisThe Utilization Rate (also known as Chargeability) measures the percentage of total staff labor charged to projects. Although some A&E firms track utilization on hours or remove vacation, holiday, sick and other paid time off, measuring by dollars and including paid time off shows the clearest picture of labor cost utilization, and has become the industry standard.

Utilization rose in 2012 from 58.3% to 59.9%, and is now up over five percentage points since bottoming out two years ago. There is still room for improvement—it was at 63% in 2004. The survey did not find dramatic differences in utilization by firm size or type.

The Utilization Rate is calculated by dividing the cost of Direct Labor (labor charged to

projects) by the total labor cost of the firm, and multiplying by l00.

2012 AVERAGE

59.9%

Ten-Year Trend

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

62.0% 63.0%

55.0%

56.5%

54.5%

58.3%

59.9%

61.5% 61.2%

57.7%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2012 2011


Average 59.9% 58.3%


60.4%

59.5%


55.0%

56.0%

57.0%

58.0%

59.0%

60.0%

61.0%

62.0%

63.0%

64.0%

65.0%

66.0%

58.6%

60.9%

54%

56%

58%

60%

62%

64%

66%

A or A/E E or E/A

60.9%60.2%

57.7%

54%

56%

58%

60%

62%

64%

66%

1-50 51-250 251+



Net Labor Multiplier

2012 by Firm Type


AnalysisThe Net Labor Multiplier is a measure of the actual mark-up on labor costs. It should not be confused with the “Target Multiplier,” which is a firm’s goal (but not actual) for labor mark-up.

Over the past three years, the Net Labor Multiplier has been relatively flat, fluctuating between 2.85 and 2.95. Larger firms had higher multipliers than small or mid-sized firms, but for all firms,v competitive pressures on fees are helping to keep multipliers down. The expectation is that this pressure will continue, causing firms to focus on executing more efficiently.

The Net Labor Multiplier is calculated by dividing Net Revenue by Direct Labor, the cost

of labor charged to projects.

2012 AVERAGE

2.91

Ten-Year Trend

2.70

2.75

2.80

2.85

2.90

2.95

3.00

3.05

3.10

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2.92

2.88

3.02 3.00

3.07

3.03 3.01

2.85

2.95

2.91

2012 2011

Top Quarter 3.23 3.36

Average 2.91 2.95

Bottom Quarter 2.73 2.74

3.43

2.86

2.70

2.80

2.90

3.00

3.10

3.20

3.30

3.40

3.50

3.60

3.70


3.04

2.86

2.70

2.80

2.90

3.00

3.10

3.20

3.30

A or A/E E or E/A

2.91 2.90

3.10

2.70

2.80

2.90

3.00

3.10

3.20

3.30

251+51-2501-50



Total Payroll Multiplier

2012 by Firm Type


AnalysisTotal Payroll Multiplier is perhaps the most consistent single indicator of an A&E firm’s operating performance. By combining Utilization and the Net Labor Multiplier, it cancels out the push and pull between those ratios and shows how efficiently a firm converts labor to revenue.

The average Total Payroll Multiplier stayed near 1.80 during the favorable climate of the mid-2000s, but sank as low as 1.58 during the recession. In 2011 and 2012, it returned to form as firms improved Utilization. Those with higher than average Total Payroll Multipliers included High Performers, small firms, Architecture and A/E firms and firms that focus on the private sector.

The Total Payroll Multiplier can be calculated by multiplying Utilization by Net Labor

Multiplier, or by dividing Net Revenue by Total Labor.

2012 AVERAGE

1.75

Ten-Year Trend

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1.82 1.80

1.76

1.84

1.77

1.67 1.70

1.58

1.74 1.75

2012 2011


Average 1.75 1.74


2.09

1.70

1.60

1.70

1.80

1.90

2.00

2.10

2.20

2.30

2.40


1.81

1.72

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

A or A/E E or E/A

1.771.73 1.72

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

251+51-2501-50



125.0%

130.0%

135.0%

140.0%

145.0%

150.0%

155.0%

160.0%

165.0%

170.0%

175.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

150.0%

144.0%

154.0% 155.0%

151.0%

167.0% 166.0% 165.0%

172.5%

161.6%

Overhead Rate

2012 by Firm Type


AnalysisThe Overhead Rate (excluding bonuses) shows the relationship of a firm’s non-chargeable costs—including non-billable professional time, facility costs and corporate expenses—to Direct Labor.

Overhead Rates dropped by more than 10 percentage points last year from their peak in 2011. Overhead is now at the lowest rate since the recession began. The key drivers here are rising Utilization, which decreases labor charged to Overhead, and a continued focus on cost control. Based on historical trends, there is room for the Overhead Rate to decline even further, primarily through improved utilization as the economy improves. Small firms and Engineering and E/A firms did the best at keeping Overhead Rates low.

The Overhead Rate is calculated by dividing Total Overhead (before distributions) by Total

Direct Labor Expense, times 100.

2012 AVERAGE

161.6%

Ten-Year Trend2012 2011


Average 161.6% 172.5%


161.8% 161.2%

135%

140%

145%

150%

155%

160%

165%

170%

175%

180%

185%

190%


164.8%

154.9%

130%

140%

150%

160%

170%

180%

190%

A or A/E E or E/A

151.7%

161.6%

174.0%

130%

140%

150%

160%

170%

180%

190%

1-50 51-250 251+



Net Revenue Per Employee

2012 by Firm Type


AnalysisNet Revenue Per Employee can be an excellent indicator of a firm’s operating performance. High Performing firms almost always have higher revenue per employee, the result of negotiating higher fees, controlling labor expenses and pushing higher Utilization. This number generally rises over time with inflation.

After rising rapidly from 2003 to 2008 to a high of $128,143, Net Revenue Per Employee declined for three years to $113,377 and then finally began to make up lost ground in 2012, rising to $121,902. High Performing firms generated over 20% higher revenue per employee. Large and mid-sized firms reported higher Revenue Per Employee than small firms, although they also had higher Overhead rates.

Net Revenue Per Employee is calculated by dividing annual Net Revenue by the average

total number of employees during the year, including principals.

2012 AVERAGE

$121,902

Ten-Year Trend

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$87,381 $93,243

$106,198 $111,208

$118,329

$128,143

$120,483 $117,924

$113,377

$121,902

2012 2011

Top Quarter $138,626 $132,825

Average $121,902 $113,377

Bottom Quarter $104,815 $99,015

$144,133

$117,484

$100k

$105k

$110k

$115k

$120k

$125k

$130k

$135k

$140k

$145k

$150k

$155k

$160k

$165k


$122,907 $121,420

$100k

$105k

$110k

$115k

$120k

$125k

$130k

$135k

$140k

A or A/E E or E/A

$117,562

$123,059 $124,609

$100k

$105k

$110k

$115k

$120k

$125k

$130k

$135k

$140k

251+51-2501-50



Staff Growth or Decline

2012 2011


Average 3.3% 2.7%

Bottom Quarter (2.3%) (5.2%)

AnalysisThe average rate of Staff Growth increased from 2.7% to 3.3% between 2011 and 2012. High Performers, Architecture and A/E firms and mid-sized firms expanded their staff at the fastest rate, while large firms grew at the slowest rate. Overall, in 2012, 57% of firms increased headcount, 11% had no change, and 32% declined.

Staff Growth is calculated by subtracting the end of year headcount from the start of year

headcount, dividing the result by the start of year headcount, and multiplying by l00.

2012 by Firm Type


4.1%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%


4.9%

3.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

A or A/E E or E/A

2.8%

4.0%

1.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

251+51-2501-50

2012 AVERAGE

3.3%

Employee Turnover

2012 2011


Average 11.8% 13.8%


AnalysisTurnover is the rate at which an A&E firm loses employees, whether voluntary or involuntary. Employee Turnover is costly in terms of lost productivity, management time, wasted training dollars, recruiting fees and more. The average Turnover rate declined from 13.8% to 11.8% between 2011 and 2012. High Performing firms did a better job in 2012 at retaining employees, with a Turnover rate three percentage points lower than all other firms. Larger firms have higher Turnover than their smaller counterparts.

Annual turnover is calculated by dividing the number of employees leaving during the

year by the average number of employees during the year.

2012 by Firm Type


9.7%

12.7%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%


12.4% 11.7%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

A or A/E E or E/A

10.3%

12.4% 13.0%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

251+51-2501-50

2012 AVERAGE

11.8%


IntroductionIn this section, we continue with a deep dive into the most critical A&E financial metrics, focusing now on financial ratios from the Balance Sheet.

In the Appendix at the back of the report are comprehensive tables, including all the metrics from this section and more.

In the analysis, we will point out selected highlights, but we also encourage readers to use the data to answer their own questions.

Key Data Points

• After over five years of sub-par profitability, the average firm’s Current Ratio has declined, but is currently in an acceptable range.

• Debt to Equity rose quickly during the recession, peaking at 1.150 in 2011, then dropped by 25% in 2012.

• The average A&E firm was carrying six months of Backlog at the end of 2012.

• The Average Collection Period, at 76 days, is still above historic averages.

• Return on Equity rates have recovered strongly from their 2009 low of 10.7 to 21.8% in 2012, which is in the pre-recession range.

Section 3: The Balance Sheet

Current Ratio ................................. 21

Debt to Equity Ratio .................. 22

Backlog ........................................... 23

Average Collection Period ............................................. 24

Working Capital Per Employee .............................. 25

Return on Equity ......................... 26

Total Assets Per Employee .............................. 27

Total Liabilities Per Employee .............................. 27

Total Equity Per Employee .............................. 27


Current Ratio

2012 by Firm Type


AnalysisThe Current Ratio (also known as working capital ratio) measures liquidity and is used to gauge a company’s ability to meet its short-term obligations. Higher is better. Bankers traditionally prefer this number to be above 1.5, and in today’s climate, perhaps even higher.

After over five years of sub-par profitability, the average firm’s Current Ratio has declined, but is currently in an acceptable range. High Performers enjoy greater short-term liquidity. Average liquidity declined in mid-sized and larger firms. Keep in mind that the Current Ratio can always be distorted by old A/R or inflated Work in Process that may need to be written off.

The Current Ratio is calculated by dividing Current Assets (cash and near cash assets)

by Current Liabilities (those due in one year or less).

2012 AVERAGE

2.24

Ten-Year Trend

1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

3.10

3.30

3.50

2.91 2.99

2.67

2.88

3.24

1.82

2.56

2.24

1.92

2.24

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2012 2011


Average 2.24 1.92


3.06

2.19

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

3.75


2.032.34

1.50

2.00

2.50

3.00

3.50

4.00

A or A/E E or E/A

2.372.20

1.97

1.50

2.00

2.50

3.00

3.50

4.00

251+51-2501-50



Debt to Equity Ratio

2012 by Firm Type


AnalysisDebt to Equity is a measure of a company’s financial leverage. There is no hard and fast rule on what is a good or bad Debt to Equity ratio. It depends on a host of factors, but in uncertain times A&E firm leaders are generally averse to debt.

Debt to Equity declined for the average firm throughout the boom of the 2000s, then spiked during the recession, peaking at 1.15 in 2011, before dropping by 25% in 2012. This seems to be a consequence of higher profitability or the choice to pay down debt rather than distribute profits in employee bonuses or owner distributions. In addition, the continuing tight lending environment makes it hard for firms to increase leverage.

The Debt to Equity ratio is calculated by dividing Total Liabilities by Stockholders’

Equity.

2012 AVERAGE

0.87

Ten-Year Trend

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

1.300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1.00

0.83 0.75

0.72 0.73

1.01

0.79

0.97

1.15

0.86

2012 2011


Average 0.87 1.15


0.38

0.99

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00


1.02

0.69

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

A or A/E E or E/A

0.55

0.99

1.41

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

251+51-2501-50



Backlog

2012 by Firm Type


AnalysisBacklog is the total dollar value of projects under contract minus job-to-date revenue from those projects. Backlog months indicate how many months a firm can operate at its current run rate, assuming it sells no new projects. The average A&E firm carries six months of Backlog, with the average mid-sized and larger firms enjoying bigger Backlogs than small firms. Backlogs did grow slightly in 2012.

Backlog in months is calculated by dividing Backlog dollars by annual Total Revenue,

times 12.

2012 AVERAGE

6 months

2012 2011

Top Quarter 9.7 9.0

Average 6.0 5.3


6.0 6.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0


5.86.2

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

A or A/E E or E/A

4.6

7.0 6.7

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

251+51-2501-50


Average Collection Period

2012 by Firm Type


AnalysisThe Average Collection Period is the length of time it takes to collect Accounts Receivable (A/R) from your clients, from the time invoice is entered into A/R to when it is credited against A/R.

Collections slowed in 2008 and again in 2011, and are still above their historic averages. In 2012, across all sizes and types of firms, the Average Collection Period was in the 70s. For half of all firms, it is between 60 and 98 days.

The high level of average collection days can be attributed to A&E firms being eager to accept work, even when the client may be less credit worthy. Also, economic conditions often tend to slow the payment cycle.

High Performing firms have an Average Collection Period 10 days shorter than other firms. To put this in perspective, for an A&E firm with $10 million in annual revenues, 10 days represents nearly $275,000 in cash. Improved collections can lower a firm’s leverage ratios as well.

The Average Collection Period is calculated by dividing Accounts Receivable by annual

Total Revenue, times 365.

2012 AVERAGE

76 Days

Ten-Year Trend

67 69 68

70

76

68

87

76

50

55

60

65

70

75

80

85

90

67 68

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2012 2011

Top Quarter 98 102

Average 76 87

Bottom Quarter 60 71

67

77

60

65

70

75

80

85

90

95

100


7774

60

65

70

75

80

85

90

95

100

A or A/E E or E/A

76 77

72

60

65

70

75

80

85

90

95

100

251+51-2501-50



Working Capital Per Employee

2012 by Firm Type


AnalysisWorking Capital Per Employee is another liquidity measure that shows the ability of an A&E firm to meet its short-term obligations and continue operations without borrowing additional cash. The average rose from 2011 to 2012 by approximately 12%. High Performers have an 80% higher Working Capital Per Employee than other firms. Pound for pound, mid-sized and larger firms also have more Working Capital.

Working Capital Per Employee is calculated by the formula Current Assets minus Current

Liabilities, divided by the current number of employees.

2012 AVERAGE

$26,953

2012 2011

Top Quarter $39,363 $36,990

Average $26,953 $24,111


$44,849

$25,214

$15k

$20k

$25k

$30k

$35k

$40k

$45k

$50k

$55k

$60k


$26,079 $27,090

$15k

$20k

$25k

$30k

$35k

$40k

A or A/E E or E/A

$24,011

$27,799 $26,568

$15k

$20k

$25k

$30k

$35k

$40k

251+51-2501-50


Return on Equity

2012 by Firm Type


AnalysisReturn on Equity (ROE) measures the potential reward of an ownership interest in a firm. We use after-bonus, pre-tax income to calculate it. It’s primarily of use for comparative financial analysis.

ROE has recovered strongly from its 2009 low of 10.7%, and is now back to pre-recession rates. ROE generally follows the results for Operating Profit. For example, High Performers have an average ROE nearly three times higher than other firms. In an exception to this rule, the average small firm has a ROE twice that of the average large firm, even though its Operating Profit rate was about the same. When firms choose to use bonuses rather than dividends to distribute profits—perhaps to avoid double taxation—it may also distort the ROE picture.

Return on Equity is calculated by dividing Pre-Tax Income (Operating Profit less

bonuses, interest, and other income or expenses) by Stockholders’ Equity, times 100.

2012 AVERAGE

21.8%

Ten-Year Trend

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

16.8% 16.6% 17.0%

23.4%

18.1%

15.6%

10.7%

22.5%

19.7%

21.8%

2012 2011


Average 21.8% 19.7%


46.5%

17.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%


24.7%18.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

A or A/E E or E/A

26.5%20.7%

12.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

251+51-2501-50



Total Assets Per Employee

2012 2011

Top Quarter $78,248 $80,020

Average $61,028 $62,498


AnalysisMid-sized and larger firms had significantly higher Assets Per Employee than small firms.

2012 AVERAGE

$61,028Total Assets Per Employee is calculated by dividing

Total Assets, both short-term and long-term, by the current number of employees.

Total Liabilities Per Employee

2012 2011

Top Quarter $43,950 $50,425

Average $26,751 $32,467


AnalysisArchitecture and A/E firms have 45% higher average Liabilities Per Employee than Engineering and E/A firms, perhaps due to a greater use of subconsultants. As with Assets, the Total Liabilities Per Employee are much higher in larger firms than small ones. High Performers had lower Liabilities than other firms.

2012 AVERAGE

$26,751Total Liabilities Per Employee is calculated by

dividing Total Liabilities, both short-term and long-term, by the current number of employees.

Total Equity Per Employee

2012 2011

Top Quarter $43,173 $39,764

Average $27,805 $26,220


AnalysisEquity Per Employee rose slightly in 2012. Consistent with their higher profitability and stronger balance sheets, High Performing firms had a 75% higher Equity Per Employee than other firms.

2012 AVERAGE

$27,805Total Equity Per Employee is calculated by dividing

Stockholders’ Equity by the current number of employees.


IntroductionWhat’s next for A&E firms? We asked them to look into the future and tell us where they believe future growth will come from in addition to what they are doing to optimize their business. Participants estimated their 2013 revenues and 18-month workload for four different markets—private sector, public sector, institutional and residential. They also reported on their technology investment plans and outlook for green building and international projects.

Section 4: A&E Outlook and Strategies

Introduction ................................. 28

2013 Revenue Forecast ......................................... 29

Outlook: Market Positions .........................30

Outlook: Green Building ............................. 32

Outlook: International ................................. 32

Outlook: Technology Investment ........... 33

Strategies: Factors in Proposals .................. 34

Strategies: Success Factors ......................... 35

Key Data Points• Revenue growth projections for 2013 were

slightly higher than the actual 2012 growth rate, rising from 2.7% to 3.2%.

• Study participants have the highest expectations for the private sector market. Nearly half expect their private sector work to grow.

• Less than half of participants said they focused on the residential market, but nearly all of those expected steady or growing work.

• Nearly three quarters of participants say “green” projects are a source of work for them, with a third of those calling it a “major source.”

• The percentage of firms who said international work would be very important or critical has declined each year since 2009.

• Nearly 80% of participants expect to make technology investments in the near future, with a little over 60% planning to spend on information management, and nearly half in design and documentation.


2013 Total Revenue Forecast

AnalysisWe asked participants to estimate their 2013 Total Revenue, and compared it to 2012 revenue. Then we compared this to the actual growth rate for 2012.

Revenue growth projections for 2013 were slightly higher than the actual 2012 growth rate, rising from 2.7% to 3.2%. This is consistent with the trend of slow, steady improvement found in most of the key performance indicators. Interestingly, the cutoff for the top 25% of responses did drop from 13.6% to 10.8%, perhaps showing that after the last five years of challenging times there is still caution to the optimism. However, at the same time,’ the bottom 25% level rose from negative 4.2% to negative 1.2%.

Also noteworthy is that High Performing firms had a lower average growth projection than other firms. Small firms had the lowest growth projection at a mere 1.3%. Mid-sized and larger firms were above average.

Finally, we should point out that the 2012 growth rate was calculated only for participants who provided both 2011 and 2012 data in the study, which was a smaller group with a different composition.

AVERAGE

3.2%

2013 Projection 2012 Actual Change


Average 3.2% 2.7%

Bottom Quarter (1.2%) (4.2%)

2012 High Performers

2.7%3.5%


1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

All Firms

2.7%3.2%

2012 Actual 2013 Projection0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2012 by Firm Type

2.5%

3.5%

A or A/E E or E/A0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2012 by Firm Size

1.3%

4.4%

3.7%

1-50 51-250 251+0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


Outlook: Market Positions

Expect our work

to grow Expect our work to

remain steadyExpect our work to

declineExpect to re-enter

this marketDo not focus on

this market

Public Infrastructure 31.1% 36.1% 6.6% 0.5% 25.7%

Institutional 31.7% 43.7% 5.5% 0.0% 19.1%

Private Sector 48.6% 41.5% 5.5% 0.0% 4.4%

Residential 14.2% 26.8% 4.4% 1.6% 53.0%

We asked: Which best describes your firm’s market position in the next 18 months for public infrastructure, institutional, private sector and residential?

Participants’ responses give insight into the expected growth and decline for each of the four markets. They also showed the market focus and mix for different types and sizes of A&E firms, High Performers versus other firms, and so on.

Study participants have the highest expectations for the private sector market. It’s a market nearly every A&E firm is involved in to some degree, and nearly half expect their private sector work to grow. The outlook for private sector work was fairly consistent across all types and sizes of firm.

0%

20%

40%

60%

80%

100%

Large 251+

Medium 51-250

Small 1-50

Engineering or E/A

Architecture or A/E

High Performers

All Participants

Do not focus on this market

Expect our work to grow

Expect our work to remain steady

Expect our work to decline

Served this market in the pastand expect to re-enter it

Private Sector


Less than half of participants focused on the residential market, but that was more than we reported in last year’s survey, perhaps showing the beginning of a recovery in this market. Of those that do serve the residential market, the great majority expected steady or growing work. Interestingly, it was one of the only markets that a number of firms indicated they planned to re-enter.

Large firms were split on the institutional market, with 41.7% projecting growth—more than small and mid-sized firms—but 12.5% expecting their institutional work to decline. More Architects than Engineers expected growth in this market, but slightly more also expected a decline. High Performing firms, on the other hand, did not anticipate as much growth from the institutional market as other firms, and slightly fewer of the High Performers focused on it.

In the public sector, the highest expectations were from Engineers and large firms—40.7% of Engineers and 45.8% of large firms anticipated growth in this market vs. 31% of all participants. High Performers were less likely to focus on this market.

0%

20%

40%

60%

80%

100%

Large 251+

Medium 51-250

Small 1-50

Engineering or E/A

Architecture or A/E

High Performers

All Participants

0%

20%

40%

60%

80%

100%

Large 251+

Medium 51-250

Small 1-50

Engineering or E/A

Architecture or A/E

High Performers

All Participants

0%

20%

40%

60%

80%

100%

Large 251+

Medium 51-250

Small 1-50

Engineering or E/A

Architecture or A/E

High Performers

All Participants

Institutional

Public Infrastructure

Residential


Outlook: Green Building

We asked: How much of your work in the near future do you foresee will be driven by retrofitting and rehabilitating existing buildings to adhere to current standards and green principles?

Nearly three quarters of participants say green projects are a source of work for them, with a third of those calling it a major source. The results are very similar to what we found in the last edition of the survey.

Not surprisingly, Architecture and A/E firms were much more likely to be counting on green building. Nearly 95% say it is a source of work, including 38% who are calling it a major source of work, which is a bit higher than last year. High Performing firms are slightly more likely to be bullish on green building.

All Participants

Major source of work 23.5%

Minor source of work 49.2%

Not a source of work 27.3%

Outlook: International Business

We asked: How important will international business be to your firm in the next 18 months?

A&E firms seem to be cooling on their outlook for international business, based on response to this question since 2009. The percentage of firms who said international work would be very important or critical declined each year since 2009.

While international work has consistently been more important to large firms than small and mid-sized firms, this year the number of larger firms labeling international work very important or critical fell sharply, while more firms said it was only slightly important.

High Performing firms were more likely than other firms to rate international business as very important or critical. There was no significant difference by firm type.

All Participants

Unimportant 64.5%

Slightly Important 27.3%

Very Important 5.50%

Very Critical 2.7%

Major Source of Work: 23.5%

Not a Source of Work: 27.3%

Minor Source of Work: 49.2%

Unimportant: 64.5%

Slightly important: 27.3%

Very important: 5.5%

Very critical: 2.7%


We asked: In which areas of technology do you expect to invest in the coming 18 months?

We let participants tell us if they were planning technology investments in the next 18 months and if so, in which of two categories: 1) Design & documentation, including CADD, BIM, engineering analysis and other tools related to design work, and 2) Information management systems, including CRM, financial management, project management, business intelligence and mobile tools. Participants were allowed to choose both, so the percentages total more than 100%.

Nearly 80% of participants expect to make technology investments in the near future, with a little over 60% planning to spend on information management, and nearly half in design and documentation.

A few contrasts were apparent in the participant segments. Large and mid-sized firms are more likely to plan investments than small firms. High Performing firms are focused more on information management and less on design and documentation than other firms. More Architecture and A/E firms plan design and documentation spending than do Engineering and E/A firms.

All Participants

Information Management 62.8%

Design & Documentation 49.7%

Not anticipating investment in technology 20.2%

Technology Investments

62.8%

49.7%

20.2%

3.8%

Information Management

Design & Documentation

Not anticipating investmentin technology

Other

0% 10% 20% 30% 40% 50% 60% 70%

Technology Investments in the Next 18 Months


0% 20% 40% 60% 80% 100%

Experience in new sector

Staff utilization

High probability win

Targeted client

Likelihood of profitability

Existing client relationships

1Rank 2 3

Factors Influencing Project Proposal

We asked: Which three factors influence you the most when deciding whether to propose on a project?

Existing client relationships far and away have the greatest influence on A&E firms’ project pursuit decisions. This choice received the highest combined ranking, as well as the most top rankings. The combined ranking is the percentage of participants who ranked it first, second, or third.

Surprisingly, few firms rank staff Utilization as an important factor, and gaining experience in a new sector ranked last.

Strategies: Factors in Proposals

All Participants Combined Top Rank

Existing client relationships 91.6% 73.5%

Targeted client 59.1% 11.2%

High probability win 57.1% 8.2%

Likelihood of profitability 51.7% 5.6%

Staff Utilization 20.2% 1.5%

Experience in new sector 8.4% 0.0%


We asked: Please rank the top three of the following factors, in order of importance to the success of your firm.

In keeping with responses to the prior question, long-term client relationships were the leading success factor, though other factors also ranked highly, including having the right people and maintaining the firm’s reputation.

Just as gaining experience in a new sector does not factor into firms’ go/no-go decisions, participants did not give much weight to expanding into new disciplines or markets.

Strategies: Success Factors

All Participants Combined Top Rank

Long-term relationships with clients 87.2% 42.9%

Right people 82.8% 35.2%

Firm reputation 74.9% 18.4%

Flexibility to grow 22.7% 1.0%

Develop expertise in new disciplines 10.8% 1.5%

Expertise in new markets 10.4% 1.0%

0% 20% 40% 60% 80% 100%

Expertise in new markets

Develop expertise in new disciplines

Flexibility to grow

Firm reputation

1Rank 2 3

Right people

Long-term relationships with clients

Factors Important to Firms’ Success


All Participants High Performers All Other Firms Small 1–50 Medium 51–250 Large 251+ Architecture or A/E Engineering or E/A

KEY PERFORMANCE INDICATORS

Operating Profit Rate (on Net Revenues) 10.1% 25.0% 8.3% 9.6% 11.1% 8.7% 12.7% 9.6%

Operating Profit Rate (on Total Revenues) 7.9% 19.6% 6.7% 7.2% 8.5% 6.9% 8.3% 7.9%

Contribution Rate 65.8% 71.1% 65.1% 65.8% 65.5% 67.6% 67.2% 65.1%

Utilization Rate 59.9% 60.4% 59.5% 60.9% 60.2% 57.7% 58.6% 60.9%

Utilization Rate w/o VHS 65.5% 68.5% 64.8% 65.8% 65.8% 64.0% 65.0% 66.8%

Net Labor Multiplier 2.91 3.43 2.86 2.91 2.90 3.10 3.04 2.86

Total Payroll Multiplier 1.75 2.09 1.70 1.77 1.73 1.72 1.81 1.72

Overhead Rate w/o Bonuses 161.6% 161.8% 161.2% 151.7% 161.6% 174.0% 164.8% 154.9%

Overhead Rate w/ Bonuses 175.7% 188.5% 171.8% 167.6% 177.0% 191.0% 182.7% 171.4%

Average Collection Period (Days A/R) 76 67 77 76 77 72 77 74

Months Backlog 6.0 6.0 6.0 4.6 7.0 6.7 5.8 6.2

Backlog—Beginning of Year Per Employee $81,883 $79,788 $82,375 $55,134 $85,348 $83,174 $92,151 $79,788

Backlog—End of Year Per Employee $83,500 $89,704 $80,357 $58,927 $95,206 $85,581 $92,265 $80,988

Marketing Expense (non-labor, % of Total Revenue) 0.90% 0.60% 1.00% 0.80% 0.90% 1.10% 1.00% 0.80%

Staff Growth 3.3% 4.1% 2.5% 2.8% 4.0% 1.3% 4.9% 3.0%

Employee Turnover 11.8% 9.7% 12.7% 10.3% 12.4% 13.0% 12.4% 11.7%

2013 Total Revenue Forecast % Change 3.2% 2.7% 3.5% 1.3% 4.40% 3.7% 2.5% 3.5%


BALANCE SHEET RATIOS

Current Ratio 2.24 3.06 2.19 2.37 2.20 1.97 2.03 2.34

Debt to Equity Ratio 0.87 0.38 0.99 0.55 0.99 1.41 1.02 0.69

Working Capital per Employee $26,953 $44,849 $25,214 $24,011 $27,799 $26,568 $26,079 $27,090

Fixed Assets Per Employee $6,491 $5,167 $7,053 $5,024 $7,452 $12,240 $6,565 $6,563

Total Assets Per Employee $61,028 $73,904 $59,126 $50,407 $64,576 $71,558 $63,441 $58,899

Total Liabilities Per Employee $26,751 $21,215 $27,905 $18,333 $31,759 $41,194 $33,336 $22,880

Total Equity Per Employee $27,805 $47,394 $26,718 $26,363 $28,915 $27,567 $27,512 $28,488

Pre-Tax Return on Assets 10.7% 28.4% 8.7% 15.4% 10.0% 7.1% 11.0% 10.5%

Pre-Tax Return on Equity 21.8% 46.5% 17.1% 26.5% 20.7% 12.3% 24.7% 18.8%

Pre-Tax Return on Invested Capital 18.6% 52.6% 12.2% 26.5% 18.4% 11.4% 18.7% 18.5%

Pre-Tax Return on Working Capital 23.1% 50.0% 19.4% 26.1% 19.3% 14.8% 27.4% 22.2%

2012 Statistics at a Glance



KEY PERFORMANCE INDICATORS

Operating Profit Rate (on Net Revenues) 10.1% 25.0% 8.3% 9.6% 11.1% 8.7% 12.7% 9.6%

Operating Profit Rate (on Total Revenues) 7.9% 19.6% 6.7% 7.2% 8.5% 6.9% 8.3% 7.9%

Contribution Rate 65.8% 71.1% 65.1% 65.8% 65.5% 67.6% 67.2% 65.1%

Utilization Rate 59.9% 60.4% 59.5% 60.9% 60.2% 57.7% 58.6% 60.9%

Utilization Rate w/o VHS 65.5% 68.5% 64.8% 65.8% 65.8% 64.0% 65.0% 66.8%

Net Labor Multiplier 2.91 3.43 2.86 2.91 2.90 3.10 3.04 2.86

Total Payroll Multiplier 1.75 2.09 1.70 1.77 1.73 1.72 1.81 1.72

Overhead Rate w/o Bonuses 161.6% 161.8% 161.2% 151.7% 161.6% 174.0% 164.8% 154.9%

Overhead Rate w/ Bonuses 175.7% 188.5% 171.8% 167.6% 177.0% 191.0% 182.7% 171.4%

Average Collection Period (Days A/R) 76 67 77 76 77 72 77 74

Months Backlog 6.0 6.0 6.0 4.6 7.0 6.7 5.8 6.2

Backlog—Beginning of Year Per Employee $81,883 $79,788 $82,375 $55,134 $85,348 $83,174 $92,151 $79,788

Backlog—End of Year Per Employee $83,500 $89,704 $80,357 $58,927 $95,206 $85,581 $92,265 $80,988

Marketing Expense (non-labor, % of Total Revenue) 0.90% 0.60% 1.00% 0.80% 0.90% 1.10% 1.00% 0.80%

Staff Growth 3.3% 4.1% 2.5% 2.8% 4.0% 1.3% 4.9% 3.0%

Employee Turnover 11.8% 9.7% 12.7% 10.3% 12.4% 13.0% 12.4% 11.7%

2013 Total Revenue Forecast % Change 3.2% 2.7% 3.5% 1.3% 4.40% 3.7% 2.5% 3.5%


BALANCE SHEET RATIOS

Current Ratio 2.24 3.06 2.19 2.37 2.20 1.97 2.03 2.34

Debt to Equity Ratio 0.87 0.38 0.99 0.55 0.99 1.41 1.02 0.69

Working Capital per Employee $26,953 $44,849 $25,214 $24,011 $27,799 $26,568 $26,079 $27,090

Fixed Assets Per Employee $6,491 $5,167 $7,053 $5,024 $7,452 $12,240 $6,565 $6,563

Total Assets Per Employee $61,028 $73,904 $59,126 $50,407 $64,576 $71,558 $63,441 $58,899

Total Liabilities Per Employee $26,751 $21,215 $27,905 $18,333 $31,759 $41,194 $33,336 $22,880

Total Equity Per Employee $27,805 $47,394 $26,718 $26,363 $28,915 $27,567 $27,512 $28,488

Pre-Tax Return on Assets 10.7% 28.4% 8.7% 15.4% 10.0% 7.1% 11.0% 10.5%

Pre-Tax Return on Equity 21.8% 46.5% 17.1% 26.5% 20.7% 12.3% 24.7% 18.8%

Pre-Tax Return on Invested Capital 18.6% 52.6% 12.2% 26.5% 18.4% 11.4% 18.7% 18.5%

Pre-Tax Return on Working Capital 23.1% 50.0% 19.4% 26.1% 19.3% 14.8% 27.4% 22.2%


INCOME STATEMENT DETAIL (PER EMPLOYEE) All Participants High Performers All Other Firms Small 1–50 Medium 51–250 Large 251+ Architecture or A/E Engineering or E/A

TOTAL REVENUE

Total Revenue $149,624 $181,932 $142,197 $138,239 $159,224 $152,732 $187,376 $140,420

DIRECT EXPENSES

Consultants $20,007 $21,091 $19,996 $19,549 $19,947 $21,687 $49,610 $15,151

Bad Debt $225 $0 $327 $57 $344 $304 $495 $74

All Other Direct Expenses $5,515 $5,768 $5,497 $3,930 $5,843 $6,372 $5,592 $5,119

Total Direct Expenses $29,186 $35,859 $27,604 $27,192 $29,829 $31,164 $59,389 $23,100

NET REVENUE

Net Revenue $121,902 $144,133 $117,484 $117,562 $123,059 $124,609 $122,907 $121,420

DIRECT LABOR

Direct Labor $40,935 $41,228 $40,767 $38,360 $42,138 $40,772 $40,120 $41,528

INDIRECT LABOR

Vacation, Holiday, Sick & Personal $6,976 $7,235 $6,833 $6,466 $7,481 $7,513 $6,674 $7,080

Marketing $4,700 $3,469 $5,223 $4,002 $5,455 $4,507 $6,897 $4,223

All Other Indirect Labor $16,034 $15,294 $16,388 $15,521 $16,148 $17,734 $15,253 $16,577

Total Indirect Labor $26,741 $25,491 $27,037 $25,268 $26,598 $30,082 $27,768 $25,997

LABOR-RELATED EXPENSES

Statutory Taxes $5,750 $5,956 $5,698 $5,381 $5,890 $5,920 $5,887 $5,717

Workers' Comp $286 $304 $284 $284 $284 $344 $286 $293

Group Health, Life, Etc. $5,058 $5,000 $5,111 $4,992 $4,805 $6,114 $4,796 $5,653

401(k) Match, Pension Plan, Etc. $2,064 $2,762 $1,939 $1,970 $2,181 $2,144 $1,834 $2,204

All Other Labor-Related Expenses $214 $270 $190 $138 $364 $109 $386 $160

Total Other Labor-Related Expenses $13,890 $15,323 $13,552 $13,881 $13,777 $14,651 $13,154 $14,727

OTHER STAFF EXPENSES

Temporary Help $20 $20 $19 $0 $36 $54 $29 $0

Professional Licenses, Registrations, Dues, Etc. $425 $383 $436 $436 $437 $378 $477 $408

Conference & Continuing Educ. Registrations & Fees $374 $338 $379 $301 $463 $402 $281 $437

Travel & Meals (Non-Project, Non-Marketing) $530 $426 $551 $359 $594 $1,155 $532 $486

All Other Staff-Related Expenses $253 $332 $230 $230 $253 $639 $270 $245

Total Other Staff Expenses $1,903 $1,865 $1,904 $1,524 $1,987 $2,827 $1,830 $1,943

MARKETING EXPENSES (NON-LABOR)

Marketing Printing & Reproductions $117 $106 $121 $91 $121 $253 $187 $91

Conference/Convention Exhibits & Materials $100 $92 $103 $45 $104 $243 $163 $88

Marketing Travel $189 $127 $200 $83 $219 $670 $257 $121

Marketing Meals & Entertainment $159 $126 $191 $91 $207 $335 $141 $180

Website Development & Maintenance $1 $9 $0 $17 $0 $0 $24 $0

All Other Marketing Expenses $498 $536 $469 $367 $601 $423 $1,141 $364

Total Marketing Expenses $1,421 $1,497 $1,397 $1,287 $1,508 $1,561 $1,842 $1,141

Note: Account categories may not add up precisely because these are median values for the aggregate of all firms.



TOTAL REVENUE

Total Revenue $149,624 $181,932 $142,197 $138,239 $159,224 $152,732 $187,376 $140,420

DIRECT EXPENSES

Consultants $20,007 $21,091 $19,996 $19,549 $19,947 $21,687 $49,610 $15,151

Bad Debt $225 $0 $327 $57 $344 $304 $495 $74

All Other Direct Expenses $5,515 $5,768 $5,497 $3,930 $5,843 $6,372 $5,592 $5,119

Total Direct Expenses $29,186 $35,859 $27,604 $27,192 $29,829 $31,164 $59,389 $23,100

NET REVENUE

Net Revenue $121,902 $144,133 $117,484 $117,562 $123,059 $124,609 $122,907 $121,420

DIRECT LABOR

Direct Labor $40,935 $41,228 $40,767 $38,360 $42,138 $40,772 $40,120 $41,528

INDIRECT LABOR

Vacation, Holiday, Sick & Personal $6,976 $7,235 $6,833 $6,466 $7,481 $7,513 $6,674 $7,080

Marketing $4,700 $3,469 $5,223 $4,002 $5,455 $4,507 $6,897 $4,223

All Other Indirect Labor $16,034 $15,294 $16,388 $15,521 $16,148 $17,734 $15,253 $16,577

Total Indirect Labor $26,741 $25,491 $27,037 $25,268 $26,598 $30,082 $27,768 $25,997

LABOR-RELATED EXPENSES

Statutory Taxes $5,750 $5,956 $5,698 $5,381 $5,890 $5,920 $5,887 $5,717

Workers' Comp $286 $304 $284 $284 $284 $344 $286 $293

Group Health, Life, Etc. $5,058 $5,000 $5,111 $4,992 $4,805 $6,114 $4,796 $5,653

401(k) Match, Pension Plan, Etc. $2,064 $2,762 $1,939 $1,970 $2,181 $2,144 $1,834 $2,204

All Other Labor-Related Expenses $214 $270 $190 $138 $364 $109 $386 $160

Total Other Labor-Related Expenses $13,890 $15,323 $13,552 $13,881 $13,777 $14,651 $13,154 $14,727

OTHER STAFF EXPENSES

Temporary Help $20 $20 $19 $0 $36 $54 $29 $0

Professional Licenses, Registrations, Dues, Etc. $425 $383 $436 $436 $437 $378 $477 $408

Conference & Continuing Educ. Registrations & Fees $374 $338 $379 $301 $463 $402 $281 $437

Travel & Meals (Non-Project, Non-Marketing) $530 $426 $551 $359 $594 $1,155 $532 $486

All Other Staff-Related Expenses $253 $332 $230 $230 $253 $639 $270 $245

Total Other Staff Expenses $1,903 $1,865 $1,904 $1,524 $1,987 $2,827 $1,830 $1,943

MARKETING EXPENSES (NON-LABOR)

Marketing Printing & Reproductions $117 $106 $121 $91 $121 $253 $187 $91

Conference/Convention Exhibits & Materials $100 $92 $103 $45 $104 $243 $163 $88

Marketing Travel $189 $127 $200 $83 $219 $670 $257 $121

Marketing Meals & Entertainment $159 $126 $191 $91 $207 $335 $141 $180

Website Development & Maintenance $1 $9 $0 $17 $0 $0 $24 $0

All Other Marketing Expenses $498 $536 $469 $367 $601 $423 $1,141 $364

Total Marketing Expenses $1,421 $1,497 $1,397 $1,287 $1,508 $1,561 $1,842 $1,141



FACILITY EXPENSES

Rent $5,600 $5,430 $5,786 $5,212 $5,983 $6,180 $5,983 $5,450

Non-Computer FF&E, Including Rentals & Leases $456 $360 $486 $377 $456 $527 $327 $518

Telephone, Internet & Other Communication Expenses $1,098 $989 $1,148 $1,000 $1,125 $1,123 $1,150 $1,070

Autos, Trucks, Field Equip., Etc. $591 $595 $586 $552 $449 $1,003 $98 $822

Computer Software, Hardware & Supplies $1,767 $1,973 $1,708 $1,575 $1,816 $1,808 $1,980 $1,642

Office Supplies $700 $621 $703 $704 $649 $781 $684 $687

Depreciation & Amortization $1,926 $1,628 $1,973 $1,576 $1,973 $2,177 $2,252 $1,778

All Other Facility Expenses $890 $1,061 $807 $964 $823 $890 $1,000 $823

Total Facility Expenses $13,017 $13,404 $12,929 $11,947 $13,399 $13,576 $13,631 $12,729

CORPORATE EXPENSES

Professional Liability Insurance $1,305 $1,362 $1,292 $1,493 $1,337 $982 $1,444 $1,292

General & Other Liability Insurance $350 $326 $354 $322 $411 $324 $272 $400

Accounting, Legal & Other Professional Services $1,023 $1,012 $1,027 $787 $1,128 $1,145 $1,295 $908

Other Business Licenses & Taxes $207 $203 $208 $250 $145 $247 $250 $164

All Other Corporate Expenses $804 $851 $800 $791 $850 $637 $875 $622

Total Corporate Expenses $4,632 $3,873 $4,658 $4,614 $4,508 $5,134 $4,632 $4,508

TOTAL OVERHEAD

Total Overhead Expenses $63,915 $63,211 $63,953 $61,391 $65,615 $67,854 $65,276 $63,211

OPERATING PROFIT

Operating Profit (Loss) $11,992 $37,974 $9,283 $10,856 $13,654 $10,439 $16,075 $10,937

INTEREST, BONUS, OTHER

Interest—Net $164 $11 $208 $84 $171 $183 $78 $183

Bonuses $3,340 $9,603 $2,209 $2,743 $4,402 $3,052 $3,340 $3,429

PRE-TAX INCOME

Pre-Tax Income (Loss) $6,604 $22,442 $5,319 $6,694 $6,429 $5,685 $7,282 $5,952

TAXES

State & Provincial Taxes $0 $3 $0 $0 $0 $125 $0 $0

Federal Taxes $0 $0 $0 $0 $0 $137 $0 $0

Total Taxes $0 $92 $0 $0 $6 $462 $4 $0

NET PROFIT

Net Profit (Loss) $5,729 $19,322 $5,044 $6,476 $5,476 $3,676 $6,553 $5,491

Note: Account categories may not add up precisely because these are median values for the aggregate of all firms.



FACILITY EXPENSES

Rent $5,600 $5,430 $5,786 $5,212 $5,983 $6,180 $5,983 $5,450

Non-Computer FF&E, Including Rentals & Leases $456 $360 $486 $377 $456 $527 $327 $518

Telephone, Internet & Other Communication Expenses $1,098 $989 $1,148 $1,000 $1,125 $1,123 $1,150 $1,070

Autos, Trucks, Field Equip., Etc. $591 $595 $586 $552 $449 $1,003 $98 $822

Computer Software, Hardware & Supplies $1,767 $1,973 $1,708 $1,575 $1,816 $1,808 $1,980 $1,642

Office Supplies $700 $621 $703 $704 $649 $781 $684 $687

Depreciation & Amortization $1,926 $1,628 $1,973 $1,576 $1,973 $2,177 $2,252 $1,778

All Other Facility Expenses $890 $1,061 $807 $964 $823 $890 $1,000 $823

Total Facility Expenses $13,017 $13,404 $12,929 $11,947 $13,399 $13,576 $13,631 $12,729

CORPORATE EXPENSES

Professional Liability Insurance $1,305 $1,362 $1,292 $1,493 $1,337 $982 $1,444 $1,292

General & Other Liability Insurance $350 $326 $354 $322 $411 $324 $272 $400

Accounting, Legal & Other Professional Services $1,023 $1,012 $1,027 $787 $1,128 $1,145 $1,295 $908

Other Business Licenses & Taxes $207 $203 $208 $250 $145 $247 $250 $164

All Other Corporate Expenses $804 $851 $800 $791 $850 $637 $875 $622

Total Corporate Expenses $4,632 $3,873 $4,658 $4,614 $4,508 $5,134 $4,632 $4,508

TOTAL OVERHEAD

Total Overhead Expenses $63,915 $63,211 $63,953 $61,391 $65,615 $67,854 $65,276 $63,211

OPERATING PROFIT

Operating Profit (Loss) $11,992 $37,974 $9,283 $10,856 $13,654 $10,439 $16,075 $10,937

INTEREST, BONUS, OTHER

Interest—Net $164 $11 $208 $84 $171 $183 $78 $183

Bonuses $3,340 $9,603 $2,209 $2,743 $4,402 $3,052 $3,340 $3,429

PRE-TAX INCOME

Pre-Tax Income (Loss) $6,604 $22,442 $5,319 $6,694 $6,429 $5,685 $7,282 $5,952

TAXES

State & Provincial Taxes $0 $3 $0 $0 $0 $125 $0 $0

Federal Taxes $0 $0 $0 $0 $0 $137 $0 $0

Total Taxes $0 $92 $0 $0 $6 $462 $4 $0

NET PROFIT

Net Profit (Loss) $5,729 $19,322 $5,044 $6,476 $5,476 $3,676 $6,553 $5,491


Index401(k) Match, Pension Plan, Etc., 38–39

AA, A&E, A/E definitions, 9Accounting, Legal & Other Professional

Services, 40–41Autos, Trucks, Field Equipment, Etc., 40–41Average Collection Period, 23, 36–37

B Backlog, 23, 36–37Bonuses, 40–41

CChargeability, see UtilizationComputer Software, Hardware & Supplies,

40–41Conference & Continuing Education

Registrations & Fees, 38–39Contribution Rate, 13, 36–37Consultants, 38–39Corporate Expenses, 40–41Current Ratio, 21, 36–37Debt to Equity Ratio, 22, 36–37Depreciation and Amortization, 40–41

DDirect Expenses, 38–39Direct Labor, 38–39

EE, E/A definitions, 9Employee Turnover, 20, 36–37

FFacility Expenses, 40–41Firm size of survey participants, 9Firm type of survey participants, 9Fixed Assets, 36–37

GGeneral & Other Liability Insurance, 40–41Green buildingGroup Health, Life Insurance, 38–39

HHigh performing firms, definition, 8, 9

IIndirect Labor, 38–39Institutional market, 31International market, 32

MMarketing Expense, 19, 36–37, 38–39Marketing Labor, 38–39Markets for A&E services, 30–32Multiplier, see Net Labor Multiplier, Total

Payroll Multiplier

NNet Labor Multiplier, 15, 36–37Net Profit (Loss), 40–41Net Revenue Per Employee, 18, 38–39

OOffice Supplies, 40–41Operating Profit, 11, 12, 36–37Overhead Expenses, 40–41Overhead Rate, 17, 36–37

PProfit, see Net Profit, Operating ProfitPrivate sector market, 30Professional Liability Insurance, 40–41Professional Licenses, Registrations, Dues,

Etc., 38–39Proposals, 34Public sector market, 31

QQuarter, quartile, definition, 9

RRecessions, 5Rent, 40–41Revenue, see Net RevenueRevenue Forecast, 27, 36–37Residential market, 31Return on Assets, 36–37Return on Equity, 26, 36–37Return on Invested Capital, 36–37Return on Working Capital, 36–37Revenue Forecast, 29

SStaff Growth, 20, 36–37Success factors for A&E firms, 35Survey, About, 9

TTechnology investments, 33Telephone, Internet & Other Communication

Expenses, 40–41Total Assets, 27, 36–37Total Equity, 27, 36–37Total Liabilities, 27, 36–37Total Payroll Multiplier, 16, 36–37Total Revenue, 38–39Travel & Meals Expenses, 38–39

UUtilization Rate, 14, 36–37

VVacation, Holiday, Sick & Personals, 38–39

WWorkers’ Comp, 38–39Working Capital, 25, 36–37Working capital ratio, see Current Ratio


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Architecture and Engineering Industry Study

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